Years ago, I found myself sitting in law school in Moot Court wearing an oversized itchy blue suit. It was a horrible experience. In a desperate attempt to avoid anything like that in the future I enrolled in a tax course. I loved it. I signed up for another. Before I knew it, in addition to my JD, I had a LL.M Taxation. I needed only to don my cape…. taxgirl® was born. Today, I live and work in Philadelphia, PA, one of the best cities in the world (I can't even complain about the sports teams these days). I landed in the City of Brotherly Love by way of Temple University School of Law. While at law school, I interned at the estates attorney division of the IRS. At IRS, I participated in the review and audit of federal estate tax returns. I even took the lead on a successful audit. At audit, opposing counsel read my report, looked at his file and said, “Gentlemen, she’s exactly right.” I nearly fainted. It was a short jump from there to practicing, teaching, writing and breathing tax.

The defendants are Kathleen Sebelius, in her capacity as Secretary of the U.S. Department of Health and Human Services; Jacob Lew, in his capacity as Secretary of the U.S. Department of the Treasury; Steven Miller, in his capacity as the Acting Commissioner of the Internal Revenue Service; and their respective agencies (DHHS, Treasury and IRS).

The case had been viewed by many as one of the most serious challenges to the existing Health Care Act. The plaintiffs hoped to stop the IRS from enforcing the tax credit piece of the Act. Those tax credits were thought to be an essential part of what would make the Act actually make financial sense for many individuals.

Here’s how the credits were supposed to work: as an incentive for the individual states to participate in the exchanges, refundable tax credits were made available to individuals who did not receive coverage from an employer and couldn’t otherwise afford to buy insurance. That didn’t exactly sway many of the states who opted out of the exchanges, forcing individuals to rely on the federal exchanges.

When the Regulations were published, those refundable tax credits which were intended for participants in state exchanges were extended to those individuals under the federal exchanges. The plaintiffs filed suit, arguing that making the credits available to those on the federal exchanges was beyond the scope of the law. The plaintiffs sought, through the lawsuit, to prohibit the IRS from enforcing the Regulations as written.

The plaintiffs hailed from states that did not have state exchanges. They would have, then, been subject to the rules under the federal exchanges – and by extension, eligible for those refundable tax credits. Only they didn’t want the credits. Without the credits, the plaintiffs would have been exempt from the individual mandate penalty because the cost of insurance would have been considered unaffordable. With the credit, the coverage would be bumped into the “affordable” category for coverage – coverage that, in this case, the plaintiffs argue they don’t necessarily want.

It turns out, the plaintiffs won’t get a chance to make that argument in court. Today, the United States District Court for the District of Columbia granted the government’s motion for summary judgment. Summary judgment is a legal request for the judge to dismiss with a trial (or part of a trial), arguing that there are no factual determinations at issue. Instead, the party making the motion asks the court to proceed with a ruling, usually based on documents already submitted. It’s not unusual for both parties to ask for summary judgment – and that’s what happened here.

Not only did the Court grant the government’s motion for summary judgment (and deny the plaintiffs’ motion), it entered a judgment in favor of the government (the defendants). You can read the Court’s decision here.

It is, like many decisions related to summary judgment, fairly technical. The Court churns through a host of questions about the scale of harm to the plaintiffs as well as matters of ripeness and jurisdiction. Ultimately, while the Court found that plaintiffs had not yet exhausted every other option available to them (often a bar to certain tax challenges), it was still proper to rule on the matter, finding:

Abstaining from a decision now would simply kick the can down the road until 2015, after the Secretary of the Treasury reaffirms the view he already has announced in promulgating the Rule.

The Court also dipped its toe into the “payment” versus “tax” argument, finding that “the natural conclusion to draw … is simply that Congress saw no distinction between the two terms.” The Court went on to cite Cohen v. United States, 650 F.3d at 731 where “A baker who receives an order for ‘six’ donuts and another for ‘half-a-dozen’ does not assume the terms are requests for different quantities of donuts. . . . Different verbal formulations can, and sometimes do, mean the same thing.”

With respect to the tax question, it came down to what they referred to as a “modified” version of the “now-infamous ‘duck test’”:

WHEREAS it looks like a duck, and WHEREAS it walks like a duck, and WHEREAS it quacks like a duck, and WHEREAS it is called a duck by Congress on multiple occasions, “[THE COURT] THEREFORE HOLD[S] that it is a duck.”

All of that to say that for purposes of the Anti-Injunction Act, the assessable payment could be considered a tax, meaning that certain of the plaintiffs could not make a case under that Act. That did not, however, result in a complete dismissal. The Court found that it had “jurisdiction over at least one of the individual plaintiffs’ claims” and would therefore make a decision on the merits.

After a lengthy examination of the arguments made in the complaint (including a detailed analysis of the Chevron issues), the Court found that there is no evidence that Congress intended to make the tax credits dependent upon whether a state participated in the exchanges. “To the contrary,” the Court found, “Congress assumed that tax credits would be available nationwide.” The Court went on to write that the IRS Rule is “consistent with the text, structure, and purpose of the Affordable Care Act.” The plaintiffs’ claims were, therefore, dismissed.

What does this change for taxpayers? Not much (though my answer would be very different if the plaintiffs had been successful). What the ruling does is confirm that IRS can move forward with the refundable tax credits for health care purchased on a state or federal exchange.

You can read the original complaint, as filed, via Scribd by clicking here.

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